There are a few ideas and sublinks in this article I need to unpack…that’s going to be a problem since it’s Mother’s Day weekend and it’s priority family time! But I wanted to go ahead and post it to see what others on the board made of it. I haven’t been around the SaaS scene for too long, so I missed the whole ASC 605 to 606 transition. From the posted link:
This week Alteryx reported growth will drop from 43% YoY to a mere 12.5% (vs. 30% original estimate) in Q2 because “a slowdown in new deal activity, higher expected churn, and more flexible payment terms—all of which is amplified by the upfront revenue recognition for term licenses under ASC 606” (Goldman Sachs).
ASC 606 is pulling valuation forward and misleading investors—on top of the billings confusion noted by Barclays! A 43% growth business commands the ~14x NTM multiple Alteryx is still trading at. A 12.5% grower should trade for 40% or more less than that. But alas it isn’t just accounting creating a trap. Hubspot reported increased headwinds and worsening churn, so reduced revenue guidance for the year. In response, Goldman raised their 2021 revenue and their stock price targets!
Why? Positioning. Whether through use of technically above bar accounting or good old fashioned selling of a story, positioning matters. Shopify’s Head of IR said “investors live in an entirely different context than management…yours is one of 4,000 publicly traded companies…keep that in mind when talking about messaging and execution, the story…stands out.”
What I am understanding- the author thinks Alteryx is going to suffer worse growth rates this year than what people think because they are not expected to sign new business and will miss the big up-front revenue recognition they can recognize in the first quarter of a signed deal. And the author thinks investors either don’t understand this or are disregarding this due to the “story” of analytics and TAM that Dean Stoecker is presenting. Am I missing something? Thank you all,